Tips for Buying Short Sales
We are seeing more short sales becoming available on the market in the current market conditions than we have in the past. A short sale is a sale of a property where the lender agrees to accept less than what is owed on the mortgage in order to facilitate a sale. While this typically means bad news for both the seller and the bank, it can mean opportunity to buyers who have patience. There can be some obstacles and challenges associated with buying a short sale and it does require a different approach than a regular purchase. The following 10 tips could help you successfully acquire a great deal on a short sale property.
Here are 10 important steps when considering a short sale:
Locate pre-foreclosures in your area. You can use an online database, search courthouse listings, legal ads or by using an experienced real estate agent as a buyer’s agent.
2. View the property
Gauge its condition and come up with a rough estimate of how much it’s going to take to repair or renovate. If it needs work, many "normal" buyers won’t consider it, which is good for you.
3. Do your research
What is the property worth? What’s the profit potential? If you’re an investor or even a homeowner planning to live in the home a short time you’ll want to profit from the deal.
4. Find all liens and mortgages
Ask the seller or his agent what liens are on the property, and which lender is the primary lien holder.
You have to know how you’re going to pay for the property. If you’re a good credit risk, the existing lender may be willing to give you a loan. Because they already have a lot of your information in the short-sale paperwork, they may be able to expedite the loan application process. Once an agreement is worked out, it is common the lender will require closing in as few as 20 days. This is too late to start shopping for a mortgage.
You or your agent should speak with the loss mitigation department (or perhaps the resource recovery department) rather than the collection or customer service department, which is only interested in recouping past due loan payments. You will first need to have the homeowner complete and sign (notarization is usually required) an authorization letter, which gives the lender permission to discuss the mortgage situation with you.
7. Complete the lender’s short sale application, if they have one
Many lenders have an application specifically for a short sale request.
- A settlement statement. This statement (which can be prepared by a closing agent or real estate lawyer) outlines the purchase price, the closing costs and any other costs or fees involved in the transfer of the property.
9. Negotiate
It’s not uncommon for the lender to reject your offer or to come back with a counteroffer. As with any real estate transaction, you should figure out beforehand what your absolute highest limit is, and don’t be afraid to walk away if the lender won’t meet your figure.
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